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Enter the cable carpetbagger

Opinion
Nov 11, 20024 mins
Networking

The cable companies have some public relations problems that everyone knows about – such as, their customers hate their guts. … But they do have one asset: a virtual monopoly that is profitable enough to finance their next big moves into subscription video on demand and to carry with it, almost as an afterthought, voice communications.

The people running the cable industry must be the luckiest SOBs on the face of the earth. They don’t really know what they are doing and are almost inept technically – yet they step in a pot of gold every few years. The cable industry didn’t even understand the Internet two years ago and had to be led kicking and screaming to offer cable modems.

Last month at The Yankee Group’s Future of the Network conference, I heard doom and gloom but no boom. There was the usual array of stars – Bill Esrey of Sprint, Ivan Seidenberg of Verizon, Dave Dorman of AT&T. Each of these honchos stated that only the financially strong will survive (them, of course) and predicted another 40 miles of bad road. It’s a sorry state when the industry lusts after WorldCom’s bankruptcy because shedding all the debt might give them an advantage.

The cable guys, on the other hand, are popping open champagne and spending some money, raising rates and building infrastructure – in fact, they are the only ones investing in voice, data and video. They haven’t hurled away their future by paying $150 billion for worthless 3G licenses. Sure, the cable industry players are being challenged by DirecTV and Echostar, which are growing 15% per year, but cable still has a virtual monopoly. The cable companies also are taking market share from the telephone companies at long last. SBC Communications lost 3 million access lines last year – about 5% of its installed base; Verizon lost 3.5%.

OK, so the cable guys got lucky and cable modems are neat. But now comes Part 2: video on demand. I know, you’re tired of hearing about something that has never happened, but it’s going to start. Every telephone company supplier that I know – and I know them all – is trying to retool for the cable industry; they’re thinking about the National Cable Television Association Show and the Western Cable Show and withdrawing from NetWorld and Comnet.

Are the industries different? Certainly – but not that different. The cable providers understand video and entertainment and the next requirements for interactivity. In addition, new technology is working for them – in storage and in lowering the costs of delivering advanced video services. And finally, the consumer has changed: The success of “The Sopranos” proves that people have gotten used to paying for subscription services.

And these cable companies are going to need lots of infrastructure. They need massive storage systems, enough to handle maybe 100,000 hours of programming, and they have to be able to stream content to as many as 1 million homes in real time. Want to watch “West Wing” on Tuesdays, not Wednesdays? No problem. At 8 p.m., not 9? No problem. Want to stop the movie? Rewind? Watch it over two days? Again, no problemo. Video on demand is just a gateway to television on demand or content on demand. The cable guys have already built in the digital infrastructure, and maybe a third of them will have access to these services by 2005. Furthermore, the cable companies has never actually paid dividends, like the telcos, so they can keep investing and reinvesting with all their cash flow.

Subscription video on demand, voice telephony and television on demand are all services that your local cable company will provide by 2005. When you want to understand where the growth is coming from, this is the place.

The cable companies have some public relations problems that everyone knows about – such as, their customers hate their guts. They have service delivery, billing and price-gouging problems. Agreed. But they do have one asset: a virtual monopoly that is profitable enough to finance their next big moves into subscription video on demand and to carry with it, almost as an afterthought, voice communications.

Intel Chairman Andy Grove used to say, “Only the paranoid will survive.” Bill Esrey says, “Only the financially strong will survive.” Maybe the real answer is, “Only the lucky will survive.”

Anderson is senior managing director of Yankeetek, a Cambridge, Mass., venture incubator. He is also founder of The Yankee Group and the William Porter Distinguished Lecturer at the Massachusetts Institute of Technology.

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